Trading can be very rewarding especially when you have developed your own trading strategy and style. You can use any type of analysis you want – whether it is technical analysis or fundamental analysis. However, technical analysis is generally preferred because it is based on price action and charts rather than efficiency ratios.
Once you have decided to use technical analysis as part of your trading strategy you will need to learn about patterns, indicators and/or charts. Pattern traders focus their efforts on finding patterns in the price action. Some common patterns include multiple bottom, head and shoulders and double top. There is also indicator-based technical analysis that uses indicators like Stochastics, ADX and MACD. If you are focused on charts you will primarily be using support and resistance levels.
These different trading styles cannot be learned overnight and each has its own nuances that you must be aware of. For instance, patterns must be drawn perfectly so that they move in the way you expect. Indicators tend to be more reliable when they are based on trading signals and when your strategy involves analyzing those indicators. No matter which route you choose, you should understand the basic concepts before moving forward. Many new traders do not take the time to learn about strategy and in the end this costs them.
Trend trading is a really important tool in binary options trading. A trend is when the movement of the price is going up, down or sideways and it is important to remember that you should never trade against the trend. If there is a strong upward trend then the price of the asset will rise. On the other hand, if there is a strong downward trend then the price will fall. The easiest way to determine if there is a trend is by evaluating moving averages. A moving average is an indicator on a chart that presents you with the price action of a period of time. Two of the most popular moving averages are the 200 day and 50 day but you can adjust the number of days based on your trading preferences. If there is an upward trend, the 50 day will be above the 200 day and if there is a downtrend then the 200 day will be above the 50 day.
Another type of trading strategy is known as breakout trading. In breakout trading, a trader opens a trade on an asset that is right against its resistance or support level while it is exhibiting signs of moving beyond that level. When the price of an asset breaks through the resistance or support level it is usually followed by a significant price movement. Once this happens, new support and resistance levels will be established and a new trading range will be made. It is important to keep in mind that you should always look for false breakouts.
A false breakout is when the price breaks through a support or resistance level but then returns back to the previous trend. If you are not prepared for this you could lose your investment. You also need to watch for resistance levels to fight back and push the price closer to the support level. You can find breakout trades by looking for assets that are trading near resistance or support levels when there are significant news events. Important news events and economic announcements can significantly affect price movement and it could cause the price to breakout of their resistance or support level.